Welcome to the Systemair First Quarter Report call. Throughout the call, all participants will be in listen-only mode, and afterwards there will be a question-and-answer session. Just to remind you, this conference call is being recorded. Today I'm pleased to present Roland Kasper, the CEO, and Anders Ulff, the CFO. Please begin your meeting.
Hello. Welcome, everyone. This is the quarter one Report, 2019/2020, from Systemair AB. My name is Roland Kasper. With me here is Anders Ulff also, CFO of Systemair Group, and we're happy to present to you the quarter one Report. We are by switching over to the presentation and what we call slide number two. As usual, you can find the presentation if you spend some time on our investor relations part on our webpage there, systemair.com/group. So slide number two. Systemair, a company founded in 1974 here in Skinnskatteberg in Sweden. We have an annual turnover of our last reported year of EUR 830 million, and we are listed on Nasdaq Stockholm since October 2007. Systemair Group maintains 50 sales companies in 50 countries, and we have today around about 6,200 employees in the group.
We export to more than 100 countries annually. Switching to slide three. Coming directly into the figures for quarter one. quarter one, we recorded a turnover of SEK 2.254 billion, which corresponds to 12% growth, where 4.1% organic growth. Slide four. If we break down then the growth, we see this is a good start to the year. Organic, it's mainly organic growth coming from Eastern Europe and North America and South America. Then we have a contribution by the acquisition, mainly affected by Greentek and Koolair, Greentek being the company acquired in Canada for residential ventilation and Koolair for air distribution products in Spain, contributed with 5.3%. And then we have the effect of the strengthened euro and the currency effect of 2.6%, leading us to the total growth of 12%. Switching to slide five.
The operating profit in quarter one. I'm glad here to see the development of the gross margin that has increased to 34%, coming from 32.3% last year, same period. The sales and admin expenses for the quarter have increased 7.9% with comparable units. The operating profit for the first quarter thereby amounted to SEK 173 million compared to 144.9 million, or corresponds to 7.7% in the first quarter. Next, slide six. Profit after tax. For the first quarter, the net financial items amounted to SEK 4 million positive versus a negative of 35.4 million, same period last year. Currency effects on our long-term receivables, loans in the bank, amounted to a positive of SEK 14.8 million, comparable to 28.7 million net. This relates mainly to our long-term liabilities for the strengthening of the Turkish lira towards the euro.
The interest expenses for the quarter totaled for us -SEK 10.1 million versus -SEK 6.9 million in the quarter the year before. Tax for this quarter finally amounted to SEK 48.5 million, or 27.4% positive last year's quarter. All in all, we're talking then for this quarter one in 2019-2020, SEK 128 million compared to SEK 72 million in the quarter the year before. Switching to slide seven. Our cash flow analysis for quarter one. The cash flow from the operating activities amounted to SEK 224.6 million compared to SEK 120.2 million, and the change in the working capital negative SEK 29.4 million. And here the impact on the working capital is due to the increased inventory and some trade receivables compared to last year's SEK 45.1 million.
Our net capital expenditures, and this is excluding the acquisitions and investments, is SEK 55.4 million compared to SEK 103.8 million, and this is investments in machine and equipment, mainly in Sweden, Spain, and Czech Republic. So thereby, as a sum, the free cash flow amounted to SEK 139.8 million compared to negative 28.7% last year. Now, net debt the year has increased to SEK 2.2 billion versus SEK 1.8 billion Swedish kroners last year. Switching to slide eight. Looking into the different markets in the company. For the Nordics, sales is 10% lower than the same period last year. And the Swedish, Norwegian, and Danish market have declined slightly during the quarter, while the sales in the Finnish market showed good growth. And here, just for the foreign exchange effect, acquisition and disposals, sales actually decreased with 11%.
All in all, the Nordic region stands for SEK 368 million this quarter. Switching to slide nine. Western Europe. Sales in the Western Europe market is 14% higher than in the corresponding period last year. Adjusted foreign exchange effects and acquisition sales rose by 1%. Here, the acquisition of Koolair and its volume in Spain is having a major impact on the growth. Several markets in the region performed very well during the period, and here including not only France, Italy, Portugal, but also UK, while sales slightly declined in both Germany, Austria, and in the Netherlands. All in all, a turnover of SEK 989 million in Western Europe. Switching to slide 10. Eastern Europe and CA. Sales in Eastern Europe and CA rose by 25% during the quarter. Adjusted here for foreign exchange effects and acquisitions, sales rose by 22%.
We want to highlight that the sales in Russia have increased by 17% during the quarter compared to the same period in the preceding year. The Russian market now accounts for 6% of our total sales, as against 5% in the previous year. But all the other major markets showing growth during the period, including Kazakhstan, Slovenia, and Hungary. All in all, Eastern Europe and CA amounted to SEK 405 million in this quarter. Switching to slide number 11. North and South America. Sales in North and South America region during this quarter were 33% higher than the same period last year. Adjusted for foreign exchange effects and acquisitions, the sales decreased by 16% in the region. Increased, sorry. The American market performed well in the quarter, while the Canadian has shown a slight decline compared to last year. Switching to slide number 12. Middle East, Asia, and Africa.
Sales in these markets increased by 9% during the quarter compared to the same period preceding year. And here, actually, the foreign exchange effect and acquisition had marginal or no effect on the sales. Organic growth is 9%. Sales here, especially in Malaysia, Turkey, and India, increased during the quarter but declined slightly in the Middle East. All in all, amounted to SEK 249 million in this quarter. Changing to slide number 13. As announced earlier, Systemair has acquired the ventilation part of the Australian company, Pacific HVAC Engineering, and immediately we changed the name to Pacific Ventilation. The company, which is now headquartered in Melbourne, has an annual turnover of approximately AUD 20 million compared to SEK 130 million, and it's also established with its own subsidiaries, offices, and outlets in Sydney, Adelaide, Brisbane, Perth, and Auckland, New Zealand.
The company is a main distributor of ventilation products and manufactures a smaller range of fans. The number of employees is around 60, and the company will be renamed Pacific Ventilation immediately, as already told. Switching to next slide, slide number 14. Also announced yesterday, Systemair received a major order for cruise ships. It's our dependency in the Netherlands. They have received an order of air handling units to a value of approximately EUR 3.3 million from MSC Cruises for three new ships. These new cruise ships will be built at the Meyer Werft in Papenburg in Germany, and Systemair will happily deliver 150 air handling units per ship in phases between 2020 to 2022. These units will be placed both in public and technical areas of the ships. Switching to slide number 15. As announced today, Systemair has acquired a distributor in Morocco.
The Systemair Maroc company sells Systemair products in Morocco and in Western Africa. The company had a recorded sales of approximately SEK 70 million in 2018 and has currently 27 employees. The sales company with its offices and warehouse in Casablanca has so far had license agreements to act under our name, Systemair. This acquisition represents 6% of the total shares in the company, with an option to acquire the remaining shares within three years. Switching to next slide, slide number 16. We are hereby also happy to announce that Systemair will hold a Systemair Capital Market Day on the 26th of September, 2019. We will, on this occasion, provide an update on our strategy, focusing on the profitability, sustainability, and smart energy-efficient products, our current market conditions, and our perspective on the future growth opportunities.
All these presentations will be held by myself, Roland Kasper; Anders Ulff, our CFO; Olle Glassel, our Vice President Marketing and Sales; and Mats Sandor, our Senior Technical Director. We'll conclude with a question session. We'll be very, very happy to see a lot of our fellow investors and analysts on this occasion here in Skinnskatteberg. By that, I switch to slide number 17. By that, ending this presentation and open up the lines for questions.
Thank you. If you do wish to ask a question, please press zero one on your telephone keypad. If you wish to withdraw your question, you may do so by pressing zero two to cancel. Our first question comes from the line of Carl Ragnestam of Nordea. Please go ahead. Your line is open.
Hi. It's Carl here from Nordea. I saw that you made a significant staff cut in Menerga during the quarter. Can we expect similar measures going forward, or is it enough to compensate for the lower utilization rates?
The restructuring that we're currently undertaking here in Menerga are different smaller projects that are coming together to a big one. Part of it is, of course, to take out people that are not permanently hired by us, which we have eliminated. This is mainly what you see here. I will say this is rental stuff. And what is going to be done for the next one and a half to two years might, of course, run into several activities, but I will not conclude everything here in detail. But, of course, when you're restructuring a company of that size, some effect on the resources, it will, of course, come.
The mining.
Sorry.
That's compared also with last year, so it's compared to 12 months ago. So it has not all happened during this quarter.
Okay. With rolling 12 months.
Okay. But I guess it's not enough to turn around Menerga?
Nope.
Okay. And in terms of the Nordic market, I saw that you I think you call it slight negative organic growth. I wouldn't say it's slight. It's quite significant negative organic growth of 11% in the quarter. I mean, what's behind that? And if you could talk about a little bit of the different geographical markets and end markets, perhaps, as well, if it's the air handling units that's declining. What's behind that?
What's behind that is actually that we have seen in especially last June, July, we have seen a drop in sales in Norway and Sweden. And this drop is not; it's not drastic, but we see versus our own expectations, budgets, and what we would have seen on the market and would have expected, it is a lower sales volume. So, of course, we have been looking into the markets. We have a rather good order book in both markets, and we see a weakening or a softening coming ahead. Of course, we are monitoring this quite closely, and we'll look how it will continue. But if you follow, I mean, all the different indications from the industry around, it's all how say? You get the same indications that there's a softening on those markets. But for us, it was especially Norway and Sweden.
Yeah. But we can say a little bit more positive in Norway because there, there's really good order intake as well then. So, I mean, there we are not as worried as we might be a little bit more worried for the Swedish market.
Okay. So should.
If it's a special product group, no. It's the general volume. It's not a special group that is sticking out to be very low compared to the year before.
Okay. And yeah, probably the same question in Western Europe. I mean, it looks quite soft, especially if you compare it to your sector colleagues, which I mean, they report quite decent organic growth, actually. So what's behind your stagnating growth there?
Actually, we only have one market where we see some kind of stagnation, and that is mainly it is Germany. But we don't see it as a major effect because Germany is going a little bit later into summer vacation, which is mainly ending now, more or less. It's July and August. And we had, of course we had a good growth mainly because of the effects of the acquisition by Koolair. But if I look back to last year, it was rather high comparables with some major projects also. So I would say it's only a little bit softer in Germany versus expectation and budgets. But the other markets actually performed and had the growth according to our plans. So it's only Germany a little bit.
Okay. Yeah. That's all from me. Thanks.
Thank you, Carl.
Our next question comes from the line of Marcela Klang of Handelsbanken. Please go ahead. Your line is open.
Hi, gentlemen. I do have a follow-up question regarding Germany because, for example, Rockwool reporting last week, they also mentioned weakening in Germany, seeing especially now and definitely more uncertainty. And I guess that's why it's visible in your numbers is that you include July compared to the companies with regular financial years where the second quarter finishes in June. But I would like to ask more about Germany. Do you see projects being canceled, or is this a late vacation effect, or is this general weakening that we will see in Germany for the rest of the year? What is your best guess?
If we look, Marcela, specifically at the German market, I would say the whole entire effect mainly comes from a large project order that was delivered last year that's around SEK 35 million, which is the difference, the drop on the German market. So for us, it's more flatish as it is right now.
It's the Linde order that makes a difference compared to this quarter?
Yeah. Yeah. And one of the.
So as of now, it's more uncertainty in Germany going ahead rather than you seeing falling demand or falling volumes in Germany in your second and third quarter, if I understand you correctly?
This is correct. We even actually have during the summer, we had rather good order intake on the Menerga side, and we also had a rather good summer compared to our plans with Systemair. But we didn't have the development versus last year, so it was softened at first.
Yeah. Yeah. And then follow-up regarding Sweden. There, it's not vacation effect or uncertainty. There, you actually expect weakening market going ahead in Sweden, if I understand you correctly?
At least currently, unfortunately.
Yes. Yeah.
Yes. It's a little bit behind expectations.
Yeah. Sweden being your market number four, is it still true that Germany is your largest market currently? How big could you say?
Germany is a lot.
How big share is Germany for you?
How big share Germany?
Yeah.
So we're losing you sometimes. You asked for the share of Germany, did you?
Yeah. Share of sales.
It's 14% of total sales.
14. Thank you. And final question. Could you maybe elaborate a little bit more on what is happening with Menerga right now? Are your plans according to are your activities according to plan because you were hoping for a significant uptick in profitability this year compared to last year? Has the first quarter been according to expectations?
The first quarter was more or less according to expectations. We're moving forward with our plans of restructuring the Menerga businesses. Implementation of our ERP tools and other activities when it comes to reorganization staff and processes are fully in line with our expectations timewise, yes.
Great. Thank you. I will see you on your Capital Market Day. Thank you.
Looking forward, Marcela. Yeah.
Our next question comes from the line of Henrik Alveskog of Redeye. Please go ahead. Your line is open.
Okay. Hello. A couple of questions on the high. The most recent acquisitions, if you could just give us an idea of the current profitability in these two companies and also maybe comment on you made a write-down in the report in Australia in your HVAC company there.
Correct. If you start with the acquisition in Morocco? Yeah. Morocco, it's a quite good profitable company. It's in 10% profitability level on that company, so. So it has been growing quite significant, quite fast also. It started to work some on export in that region also. So it's really interesting to see the future development of this company and that they are able to keep up the profitability even though they are going into a little bit bigger projects also. And when it comes to the company in Australia, the origin and the write-down was related to our 20% shares of Pacific HVAC. When looking deeper into that company, we realized that they had a problem with a part of the business, and we had longer negotiations with the other shareholders. And at the end, we made a how to say? An offer and a buyout.
An offer and a buyout. So what has been done is that they had a part of the business which was what they call it major HVAC products, which is more the cooling side. And this was fed by other suppliers, mostly coming from Asia and other Europeans. And that was heavily loss-making on that part. So we made a write-down and took over only the ventilation part as a full ownership in Systemair. And by that, according to our auditors, we had to make this write-down on our 20% to take over the rest of this company. So we have taken over the ventilation part, which is profitable.
Where we see the bigger upside coming already from a profitable company, of course, is to replace existing products that they are distributing from other suppliers with our own products coming here mainly from our factories in India and in Malaysia. This has started actually a little bit over our plan, so we are quite happy with this one.
Okay. All right. And just regarding Morocco, today, it's one of your distributors, but how much of the SEK 70 million annual revenues is your product, approximately?
Yeah. It's around 50% is our products. It's all that's affected, I mean, on these projects. So, I mean, it's hard to sell only our products without having the complete portfolio for that market, which is different than to the plain European market or so. This is a little bit different.
It's not like a low-hanging fruit to replace other products in their portfolio?
Some of them. Some of them. We see the possibility, of course, to make more, especially when it comes to air distribution products and some of the residential products that they are actually sourcing today from other companies in France. This, we for sure will do, but it's step by step.
But they acted as a Systemair company also in the past under the name of Systemair also. We had a license to utilize that company name.
Okay. Yeah. And then regarding the Panasonic cooperation, you said it's proceeding according to plan, I think, and you will just now start up the first deliveries. Could you give us any quantified indications of what this will mean in the short term?
We are starting according to plan, and the plan was that Panasonic, they are starting sales of units produced by 1st of October in European markets. We're a little bit ahead of plan because they already got some orders for some project-related sales in some Eastern European countries that will actually already be delivered in September month. So a little bit ahead of what we had planned from start. But so far, all the different four main activities that we're following with Panasonic as projects, being these heat pumps, being some activities in air units and residentials, all these projects are just now proceeding 100% according to plan. But the first now that is materializing in deliveries is what is coming out of Tillières in heat pumps and started now in September, not in October.
All right. But would you like to give us any numbers on what this initial business means?
We have so.
Is it even noticeable in the numbers, or?
What we have done, just to give you, we are not in a position where we between Systemair and Panasonic, where we at this stage disclose figures. But telling you that, the changes that we have done over the last two years in both our entities in France and in Italy in our AC operations, I would say that the adjustment of efficiency in our manufacturing and the factories have led to a point where our weakness today is volume. So the volumes coming from the extra sales through the Panasonic channel will for sure help us, and we will, of course, also see that in the next steps what flows.
All right. Thank you.
Thank you, Henrik.
Thank you.
Just to remind everyone, if you wish to ask a question, please press 01 on your telephone keypads. There are no further questions at this time. Please go ahead, speakers.
Yeah. Okay. If there are no more questions, ladies and gentlemen, then just a final reminder about this Capital Market Day. You can always call us, but there's also a possibility to put in your application for the Capital Market Day on our website also, of course. So see you in Skinnskatteberg on the 26th of September, hopefully.
We would be very happy to see you here, yes. Absolutely. So by that, if no further questions, thank you very much, all of you, and hope to see you soon.
Okay. Have a good day. Bye-bye.
This now concludes our conference call. Thank you all for attending. You may now disconnect your lines.